A major mystery of the Trump tariff crusade: The “Liberation Day” “reciprocal” duties he’s threatening are completely disconnected from what other nations are charging the U.S. on our exports. In virtually all cases, Trump’s tariffs are multiple times larger. How does he justify this giant gulf? The president claims we’re getting “ripped off” not by excessive tariffs but blatant “non-tariff barriers” (NTBs), such as quotas and technical standards that systematically block our goods from foreign markets, while we naively open America to the “cheaters” who lock us out.

In reality, Trump’s got it backwards: The U.S. is a far more avid user of the NTBs he finds so offensive than all but a handful of the world’s major economies.

How protectionist is the U.S.?

A highly respected guide to where different countries’ trade policies stand on the spectrum from open to restrictive is the International Trade Barrier Index compiled by the Tholos Foundation, a Washington, D.C., think tank focusing on tax reform and policy research. For 2024, the Tholos data placed the U.S. as the 24th most protectionist economy in the world from a list of 88 countries, based on the number of restraints on trade each nation imposes. Overall, we’re about 10% above average in overall restrictions—on a roster featuring lots of bad actors. The Tholos numbers rate the U.S. 60% worse than Japan and Canada, respectively ranked No. 3 and No. 4 as most open to imports; 43% below the U.K.; around a third short of the average of the EU majors; and 15% shy of Taiwan. Amazingly, the survey found that this country’s got 90% as many protectionist measures as China, which sits 11 spots from the bottom, and 70% the thicket spread by last place India.

Clearly, America’s position as relatively tough on trade overall isn’t a matter of tariffs. On the contrary. Before the Trump trade war started, the U.S. trade-weighted average duties on imports sat at an apparently welcoming 2.2%, according to the World Trade Organization. The WTO’s numbers put the average duty worldwide charged by the top six purchasers of U.S. exports—Canada, the EU, Mexico, China, Japan, and the U.K. among them—at 3.2%, only a point higher than the U.S. norm. The big exception: As a result of the offensive during the first Trump administration, China and the U.S. established special punitive rates that average 14% on their exports stateside, and 12% on our shipments to the world’s second-largest economy. So outside of trade conflicts, the U.S. is a super-low-tariff nation, and the countries where we send most of our goods don’t charge much more than we do.

Hence, what swings the U.S. from a modest deployer of tariffs to a country that’s much more protective are the indirect, non-tariff barriers or NTBs. In the same study, the Tholos Foundation tagged the U.S. as the world’s 15th-biggest user of NTBs and the fifth-ranking of any major industrial power, exceeded only by France, the Netherlands, the Czech Republic, and Switzerland. “For NTBs, the most active users are the US and the EU,” says Philip Thompson, policy analyst for Tholos.

Non-tariff barriers are extremely widespread

NTBs come in a wide variety of forms. They encompass such practices as quotas, technical standards, and packaging, labeling, licensing, and safety requirements. In a 2024 study, the St. Louis Federal Reserve reported that across 15 manufacturing sectors, NTBs covered well over two-thirds the imports of components, commodities, and finished products. The report points out the huge discrepancies between tariffs and NTBs in different industries. For the chemical and machinery/electrical sectors, U.S. tariff rates are under 2%. But NTBs covered over 70% of sales. Similar story for meat and vegetables: Tariffs look like a bargain at 3%, but over 90% of what companies in those businesses sell fall under the umbrella of NTBs. Even for what looks like free-market wood, the duty is 1%, while a third of what the U.S. imports gets shielded, pretty much on the sly. The paper concludes: “In contrast to tariffs, the [NTBs] are ubiquitous across U.S. imports in all industries.”

The St. Louis Fed found that about 20% of the NTBs involved such issues as sanitary inspections needed to protect U.S. consumers and workers. (The survey didn’t cover businesses such as semiconductors where national security may be involved.) Instead, the preponderance of NTBs appear “to reflect the goal of protecting domestic industry from foreign competition,” and result in distorting and “limiting the extent of international trade.”

How the ‘tariff-rate quota’ works

The U.S. is an avid user of a protectionist tool called the tariff-rate quota. Despite its name, the TRQ is really a non-tariff barrier because it doesn’t actually impose duties. TRQs typically allow products or commodities to enter the country duty-free to a certain level, and once the imports hit that bogey, trigger prohibitively high tariffs, effectively halting the flows of rival products and commodities from abroad, and enforcing a fixed quota to shield domestic producers. A top example: the sugar market, where, by law, the USDA rules restrict production to keep minimum prices generally higher than on the international markets. “The U.S. government is the leader of a nationwide sugar cartel,” a Cato Institute study declared. The sugar TRQ is a crucial component of that system since it prevents cheap imported sugar from undermining the guaranteed pricing.

TRQs, in fact, are a staple cash crop for U.S. agriculture. The Office of the U.S. Trade Representative publishes a list of the TRQs, and it’s exhaustive. A particular target is Australia. It faces quotas on creams and ice creams, condensed milk, butter, and a number of other farmland commodities. Canada gets hit on cheese, skim milk, butter, and many other dairy products. TRQs cap beef from Japan and cheese from Peru. Additional rules limit or block everything from beef from Brazil and Argentina, to tomatoes, blueberries and other produce from Mexico to foreign sunscreen.

In his “reciprocal” tariff campaign, Trump proposed cudgeling Taiwan at 34%, Japan at 24%, the EU at 10%, and Canada and Mexico at 25% on steel, aluminum, and non-U.S. content in cars, and he’s set a commerce-killing 245% duty on China. Yet in normal times, these nations charge the U.S. only slightly higher tariffs than the U.S. levies on their exports, and heap on far fewer non-tariff barriers than we do. Trump’s best solution would be offering to lower those NTBs that raise prices for American consumers and hobble our productivity in exchange for our trading partners’ agreement to lower their restrictions. That outcome would truly exemplify the art of the deal.

This story was originally featured on Fortune.com

• A poor day for stocks ended worse as tariff fears reentered the conversation, with major indexes sliding as tech companies report the first impacts from the U.S.’ trade war with China.

Stock markets started the day poorly and ended it worse as chipmakers reported revenue impacts from the China trade war and a hawkish speech from Federal Reserve Chair Jerome Powell reignited fears of tariffs’ stagflationary effects.

The S&P 500 lost 2.2%, led by a selloff in tech. The Dow lost 1.7% while the tech-heavy Nasdaq fell 3.1%.

Nvidia closed down 7% after the chipmaker revealed Donald Trump’s restrictions would cost the chipmaker $5.5 billion. The policy means the trillion-dollar company can no longer export a key chip to China—a market analysts estimate makes up 10% of its revenue. Rival Advanced Micro Devices sank 7% also after noting that those export limits could hit the chipmaker up to $800 million.

The existing uncertainty over trade policies was made starker by a speech from Federal Reserve Chair Jerome Powell Wednesday afternoon, who warned that tariffs would create a “challenging scenario” for the Fed of “higher inflation and slower growth,” a recipe for stagflation.

“There isn’t a modern experience of how to think about” the White House’s trade policy, Powell said in a speech to the Economic Club of Chicago.

Bond yields eased on Powell’s comments, indicating investors’ pessimism over the possibility of a U.S. recession. The yield on the 10-year Treasury note fell to 4.27% late in the day, from 4.35% in the morning and 4.48% last week, when bond markets experienced a trade-war-driven meltdown.

“Markets are struggling with a lot of uncertainty, and that means volatility,” Powell added.

The dollar gained ground against the euro Wednesday but has lost about 6% of its value in the past month as investors rethink the currency’s status as a safe haven. Gold hovered near its record high at $3,352 per troy ounce.

Earlier in the day, retail sales figures showed many consumers rushed to buy cars, electronics, and other big-ticket items last month before tariffs could hike prices further.

So far, the U.S. has a baseline tariff on most countries of 10%, with a 145% combined tariff on China. Goods from Canada and Mexico face tariffs of up to 25%, while imported autos, steel, and aluminum are taxed at that same rate. China retaliated last week by imposing a 125% tariff on U.S. goods. Tariffs are expected to drive consumer prices higher, and have contributed to plunging consumer sentiment for the fourth month in a row.

This story was originally featured on Fortune.com

• Inflation could rise and growth could slow as a result of President Donald Trump’s tariff policies, according to Federal Reserve chair Jerome Powell. During a speech on Wednesday, Powell said the Fed’s top goal was keeping price increases from Trump’s tariffs limited to a one-time event, so inflation doesn’t linger. 

Federal Reserve chair Jerome Powell sounded his strongest warning to date about the impact of President Donald Trump’s on-again, off-again tariffs.

“The level of tariff increases announced so far is significantly larger than anticipated, and the same is likely to be true of the economic effects, which will include higher inflation and slower growth,” Powell said on Wednesday during a speech at the Economic Club of Chicago. 

Tariffs would raise inflation and slow growth, Powell said, reiterating a point he made earlier this month. They have also weighed heavily on expectations businesses and consumers had about the economy.

“Surveys of households and businesses report a sharp decline in sentiment and elevated uncertainty about the outlook, largely reflecting trade policy concerns,” Powelll said. 

The economy now faced “heightened downside risks,” Powell added—a stark acknowledgement of a possible economic downturn for the usually circumspect role of Federal Reserve chair. 

In the time since Powell’s latest comments earlier this month, the White House retracted and then reenacted numerous parts of its original widespread tariff policy. Most notably, Trump paused the tariffs announced on April 2 for every country except China, which was hit with additional levies. His administration then granted exemptions to certain products like smartphones and semiconductors, until Trump personally intervened to reverse course on those exemptions. The constant back and forth created a backdrop of uncertainty for businesses and investors, many of whom were still reeling from the market crash Trump’s tariffs caused. 

Powell saw it as “highly likely” tariffs would raise prices, but the key question the Fed was still evaluating is how long they would last. 

“Our obligation is to keep longer term inflation expectations well anchored and to make certain that a one time increase in the price level does not become an ongoing inflation problem,” he said. 

One of the key metrics the Fed watches in its assessments of the economy are long-term inflation expectations. If those rise, it means business leaders, investors, and the public at large see inflation as a chronic problem that won’t go away. When that happens, they’re much more likely to cut back on spending, which only raises the likelihood of a recession. 

The latest CPI report from March measured inflation at 2.4%, slightly lower than expected. However, that read came before Trump implemented his tariff policy. 

Since Powell last spoke, the economic turmoil of Trump’s tariffs made its way from the stock market to the bond market. Yields on 10-year and 30-year Treasuries soared at the same time as U.S. and global stocks were cratering. That gave the indication that scared investors were pulling their money out of stocks, and rather than parking it in U.S. bonds, considered the safest investments in the world, were actually selling those assets as well. Those dynamics signaled an unprecedented lack of faith in the U.S. economy. 

“There isn’t a modern experience of how to think about this,” Powell said of the recently implemented tariff policy. 

The moves in the bond market were unusual, according to Powell, who urged caution about jumping to conclusions about what caused them. 

“It’s the markets processing historically unique developments and with great uncertainty,” Powell said. “I think you’ll probably see continued volatility, but I wouldn’t try to be definitive about exactly what’s causing that.”

As is customary, Powell did not tip his hand about upcoming monetary policy moves or when they would happen. Instead, Powell said that the relative strength of the U.S. economy had bought the Fed time before needing to make a decision. 

“For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance,” he said. 

Trump’s tariffs are almost certain to raise prices for businesses and consumers, which would hamper the Fed’s yearslong efforts to bring down inflation. In that scenario, rate hikes might be warranted. However, that would be a reversal from the rate-cutting cycle the Fed has been in since September. At the same time, rate cuts would be warranted if the U.S. economy enters a recession. The worst-case scenario is stagflation, which is when inflation is high but the economy doesn’t grow. Powell defined that particular scenario as a “challenging” one in which the Fed’s dual mandate goals of full employment and stable prices would be “in tension.” 

“It’s a difficult place for central banks to be in,” Powell said. 

In short, the range of outcomes for what the Fed might, or should do, is only widening. 

The market is currently pricing in between two and three rate cuts in 2025 starting in the second half of the year. But those plans could be subject to change given how volatile things are across the economy.

“Markets are struggling with a lot of uncertainty, and that means volatility,” Powell said.

This story was originally featured on Fortune.com